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Title insurance for realty sector fails to pick up despite made mandatory

The Real Estate Regulation and Development Act 2016 (RERA) mandates the purchase of Title Insurance for all new and ongoing property developments registered with the regulatory body. (Express photo by Gajendra Yadav)

The concept of 'Title Insurance' aimed at protecting the promoters and customers of the real estate projects against many risks, has failed to take off due to high pricing and lack of clarity on a host of technical issues despite being made mandatory for real estate projects.

The Real Estate Regulation and Development Act 2016 (RERA) mandates the purchase of Title Insurance for all new and ongoing property developments registered with the regulatory body.

Though IRDA has already approved seven products of the seven general insurers including, New India Assurance, National Insurance Company, ICICI Lombard General Insurance, Bajaj Allianz General Insurance, HDFC Ergo General Insurance, Tata AIG General Insurance and Liberty General Insurance, there are hardly any transactions for the Title Insurance products with many of them seeing only two or three deals, said an industry official.

"We are keen that market for the title insurance picks up as the government wants to promote housing for all in the country. How much premium the insurance companies can charge is left to them,'' said an IRDAI official.

Title insurance, which is common in the US, is a form of indemnity insurance which insures builders and customers against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage loans.

The premium would vary between 0.5 to 3 per cent of the sum insured for a seven year policy which can be extended further.Though such a product is already made mandatory in the Act, the state governments will have to notify the mandatory feature of the product separately. "The state governments are in the process of enacting Land Titling Bill and may consider to notify the mandatory feature of the Title Insurance," said an official source.

Once, the state government makes it mandatory, the state real estate regulatory body can enforce it amomg the promoters of the real estate projects. However, sources said the governments in states like Maharashtra are not in a hurry to notify the product as premiums for such products seem to be expensive and ultimately have to be recovered from the buyers of the real estate projects.

This could push up the final cost of the property. The Maharashtra government is now currently evaluating its role in controlling the premiums, which are fixed by the insurance companies, after making Title Insurance mandatory. The title Insurance can cover the gross asset value, consisting of land cost, construction cost and profitability, of a real estate project, said an official.

Moreover, defence and legal costs incurred are also covered under the policy.